INTERNATIONAL FEDERATION OF ACCOUNTANTS

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International Federation of Accountants
Global Regulatory Developments in the Financial
Reporting Supply Chain by Charles Tilley
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Financial Turmoil 2001
FRSC GLOBAL DEVELOPMENTS

• Led to IFAC reports to restore credibility,
  improve governance, achieve convergence further
  develop the financial reporting supply chain
• Recommendations emphasize importance of
• Tone-at-the-top
• Board auditor independence
• Risk control systems
• Balance between compliance performance
• Aligned remuneration
• Transparent reliable communication
• Convergence to principles-based global standards

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Global Temperature Check on Progress Follow-up
FRSC GLOBAL DEVELOPMENTS

• Responses from 74 IFAC member bodies from 58
  countries
• Albania, Armenia, Australia, Austria, Azerbaijan,
  Bangladesh, Botswana, Brazil, Bulgaria, Canada,
  China, Cyprus, Czech Republic, Denmark, Egypt,
  Finland, Germany, Hong Kong, India, Ireland,
  Israel, Japan, Jordan, Kenya, Kosovo, Lesotho,
  Lithuania, Malawi, Malaysia, Malta, Mexico,
  Mongolia, Netherlands, Nicaragua, Pakistan,
  Philippines, Poland, Republic of Korea, Romania,
  Russian Federation, Saudi Arabia, Singapore,
  Slovakia, Slovenia, South Africa, Spain, Sri
  Lanka, Switzerland, Tanzania, Tunisia, Turkey,
  Uganda, Ukraine, United Kingdom, United States of
  America, Uruguay, Uzbekistan Vietnam

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Global Temperature Check
FRSC GLOBAL DEVELOPMENTS

• Four topic areas
• Corporate Governance
• Financial Reporting Process
• Audit of Financial Reports
• Usefulness of Financial Reports

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Global Temperature Check
FRSC GLOBAL DEVELOPMENTS

• Four topic areas
• Corporate Governance
• Financial Reporting Process
• Audit of Financial Reports
• Usefulness of Financial Reports

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FRSC GLOBAL DEVELOPMENTS

• Major Positive Governance Developments
• New or revised updated codes of governance
• Major Negative Governance Developments
• No major negative regulatory governance
  developments in many countries
• Issues with application of governance concepts
• Issues as identified in previous IFAC reports
• Institute Actions on Governance
• Thought leadership, education awareness

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Progress on Governance Issues
FRSC GLOBAL DEVELOPMENTS
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Follow-up on Governance Recommendations
FRSC GLOBAL DEVELOPMENTS
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FRSC GLOBAL DEVELOPMENTS

• Other Remaining Governance Issues
• Risk focus too narrow
• Little integration of governance into overarching
  business model
• Lack of safe harbor protection
• Need for more governance in public sector
• Governance Opportunities for IFAC Member
  Bodies
• Collaboration to further develop, bring together
  disseminate governance guidance

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Global Temperature Check
FRSC GLOBAL DEVELOPMENTS

• Four topic areas
• Corporate Governance
• Financial Reporting Process
• Audit of Financial Reports
• Usefulness of Financial Reports

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FRSC GLOBAL DEVELOPMENTS

• Major Positive Reporting Developments
• Adaption of /convergence to IFRS
• Major Negative Reporting Developments
• Implementation is an issue need for guidance
• Risk on increasing rules and prescription
• Continued focus mainly on historical reporting
  model
• Institute Actions on Reporting
• Commenting on standards
• Providing guidance training for preparers

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Progress on Reporting Issues
FRSC GLOBAL DEVELOPMENTS
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Follow-up on Reporting Recommendations
FRSC GLOBAL DEVELOPMENTS
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FRSC GLOBAL DEVELOPMENTS

• Other Remaining Reporting Issues
• Lack of safe harbor protection for companies that
  make a good faith effort to report relevant
  info
• Suitable reporting standards for SMEs other
  entities
• (Also) Principles versus rules
• (Also) Fair value accounting and cash flow
• Reporting Opportunities for IFAC Member Bodies
  
• Case studies of companies with high quality,
  business oriented reporting in current economic
  downturn
• Guidance on business reporting requirements
• Guidance on audit process for preparers

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Global Temperature Check
FRSC GLOBAL DEVELOPMENTS

• Four topic areas
• Corporate Governance
• Financial Reporting Process
• Audit of Financial Reports
• Usefulness of Financial Reports

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FRSC GLOBAL DEVELOPMENTS

• Major Positive Auditing Developments
• Convergence to International Auditing Standards
• Emphasis on quality assurance oversight
• Guidance on SME audits liability reforms
• Major Negative Auditing Developments
• Overregulation move away from self regulation
• Increased complexity length of auditing
  standards
• Institute Actions on Auditing
• Translation and adaption to (clarified) ISAs
• Providing training in ethics auditing,
  especially for SMPs quality control reviews
  liability reforms

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Progress on Auditing Issues
FRSC GLOBAL DEVELOPMENTS
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Follow-up on Auditing Recommendations
FRSC GLOBAL DEVELOPMENTS
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FRSC GLOBAL DEVELOPMENTS

• Other Remaining Auditing Issues
• Challenges for SMPs to keep up-to-date
• Little understanding of benefits of audit
• (Also) Auditing in todays turbulent environment
• (Also) Litigation risks around audit of fair
  values
• Auditing Opportunities for IFAC Member Bodies
• Further improve convergence
• Share best practices in ethics and auditing
• Provide additional guidance for SMEs

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Global Temperature Check
FRSC GLOBAL DEVELOPMENTS

• Four topic areas
• Corporate Governance
• Financial Reporting Process
• Audit of Financial Reports
• Usefulness of Financial Reports

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FRSC GLOBAL DEVELOPMENTS

• Major Positive Usefulness Developments
• Easier access to financial information XBRL
  progress
• More engaged stakeholders more narrative info
• Focus on reporting assurance due to credit
  crunch
• Major Negative Usefulness Developments
• More extensive but less reader-friendly useable
  financial statements
• Fair value in illiquid markets is a challenge
• Institute Actions on Usefulness
• Training awareness leadership in standard
  setting providing feedback to regulators
  reporting awards

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Progress on Usefulness Issues
FRSC GLOBAL DEVELOPMENTS
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Follow-up on Usefulness Recommendations
FRSC GLOBAL DEVELOPMENTS
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FRSC GLOBAL DEVELOPMENTS

• Other Remaining Usefulness Issues
• Insufficient reporting of non-financial
  indicators, risks sustainability
• Unclear link between reporting strategy of
  company
• Use of fair value
• Usefulness opportunities for IFAC Member Bodies
  
• Reduce complexity increase meaningful narrative
  reporting
• Provide leadership, guidance training in IFRS,
  XBRL, SME accounting, sustainability reporting
  etc.
• Develop public sector financial reporting
  framework

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Overall conclusions from survey
FRSC GLOBAL DEVELOPMENTS

• Regulatory progress in many areas of governance,
  reporting, auditing usefulness of financial
  reports
• Many institute actions in areas of governance,
  reporting, auditing usefulness of financial
  reports
• Remaining issues provide opportunities for IFAC
  and Member Bodies for further action

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Financial Turmoil 2008
FRSC GLOBAL DEVELOPMENTS

• Crisis initially started in USA financial sector,
  but spread throughout global economy
• Naïve to think that crisis will not be followed
  by loud calls for more regulation
• However, we just saw regulatory progress in many
  areas of governance, reporting, auditing
  usefulness of financial reports
• What next?

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What next?
FRSC GLOBAL DEVELOPMENTS

• Better application of already existing regulation
  and previous recommendations to overcome current
  crisis
• Tone-at-the-top
• Board auditor independence
• Risk control systems
• Balance between compliance performance
• Aligned remuneration
• Transparent reliable communication
• Convergence to principles-based global standards

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What next? (2)
FRSC GLOBAL DEVELOPMENTS

• Better oversight
• And, if necessary, not more but improved
  regulation
• Based on robust evaluation of what went wrong
• Proportionate to issues it is addressing
• Principles over rules
• Cost-benefit justification

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What next? (3)
FRSC GLOBAL DEVELOPMENTS

• Important issues to address
• Boards have to take more responsibility for
  companys actions
• Expanded risk management beyond internal control
  over financial reporting
• Adequate attention to strategic oversight and
  managing value at risk
• Remuneration better linked to implementation of
  strategy risk, and creation of sustainable
  value
• Better, more useful business reporting

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Next steps for this project
FRSC GLOBAL DEVELOPMENTS

• Report on global regulatory developments
  affecting financial reporting
• Interview series with investors, preparers,
  auditors regulators on the right things to do
  to make business reporting more useful
• International Good Practice Guidance on
  evaluating improving business reporting in
  organizations

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International Federation of Accountantswww.ifac.
org